Custody

The safekeeping of securities by a regulated institution on behalf of their beneficial owner, including holding the record of ownership and processing corporate actions.

Example

A broker uses a custodian bank to hold client securities, kept separate from the broker's own assets.

Important

Segregated client assets and a broker's own assets are different things. Whether they are properly separated is the question that matters if the firm fails.

Related terms

• Brokerage account — An account with a regulated firm that holds your cash and securities and routes your orders to trading venues on your behalf.
• Street name — The common arrangement in which a broker or its custodian appears on a company's share register while your entitlement is recorded as a book entry in the broker's own records.

Lessons that explain it

• A secret number, and one line in a shared record — What you own is not a coin and not a claim on anybody. It is the ability to authorise a change to one entry on a ledger - and who holds that ability is the whole of the risk. (10 min)
• What a share actually is: last in line, and why that is the point — A share of common stock is a residual claim - everything that is left after every other claimant has been paid. That single fact explains most of what equities do. (9 min)

All 578 terms in the Investing glossary